Communicating Internal Control Matters – (1 of 2)

For auditors of financial statements, the AICPA has issued a new auditing standard effective for periods ending on or after December 15, 2006.

AICPA Statement on Auditing Standards (SAS) No. 112, Communicating Internal Control Related Matters Identified in an Audit - establishes new standards relating to the auditor's responsibility to communicate to an entity's management and to individuals charged with the entity's governance significant deficiencies and material weaknesses identified during the course of an audit of the entity's financial statements.

SAS 112 replaces SAS 60 on reporting internal control matters to the client. Some of the key changes are:
1. required to communicate to management and those charged with governance

2. report both significant deficiencies and material weaknesses

3. definition of significant deficiency makes reference to likelihood of even occurring (more than a remote likelihood)

4. must be made within 60 days of issuance of audit report

5. effective for 2006 calendar year ends (i.e. year ends after 12/15/06)

What is a significant deficiency or a material weakness? Watch for posting #2 for Communicating Internal Control Matters.